A sluggish economy and warmer weather, coupled with an increase in production, will likely keep natural gas prices flat for the 2011-2012 winter season, the Natural Gas Supply Association (NGSA) said Tuesday.

“This is good news for consumers,” NGSA CEO Skip Horvath said Tuesday during the United States Energy Association’s Annual Energy Supply Forum at the National Press Club in Washington, DC. “We’ve got a stable series of natural gas prices going forward, and that’s frankly due to a really healthy, robust, resilient and competitive natural gas market.”

According to NGSA’s Winter Outlook Report for 2011-2012, winter period-to-period gross domestic product will grow 1.2% during the 2011-2012 season, down from the 2.7% increase achieved last winter. The association said it believes manufacturing will climb 2.7% this winter — compared to a 6.1% increase last winter — while the unemployment rate would remain unchanged at 9.3%. It also predicts the consumer price index (CPI) would increase 2.9% this winter, compared to a 1.7% increase last winter.

“We tried to find a word to describe how we feel about this economy right now going forward,” Horvath said. “This year it’s more like a dream where you’re working with your heart and you think you’re running but you’re hardly moving at all. That’s what it feels like. [The economy] is trying to get engaged and get in gear, but it’s having a hard time doing that.”

Citing third-party projections from the National Oceanic and Atmospheric Administration (NOAA) and Energy Ventures Analysis (EVA), the NGSA said the 2011-2012 winter season will be 3% warmer than last year and 1% colder than the 30-year average, with 3,598 heating degree days (HDD). By comparison, the 2010-2011 winter season was 3% colder than the previous year and 4% colder than the 30-year average, with 3,716 HDD.

“Last year was the coldest winter in 10 years,” Horvath said. “The overall prognosis is that compared to last winter, we’re going to see less demand.”

Overall gas demand will be 78.9 Bcf/d this winter, down from the 81.1 Bcf/d that was used last winter, NGSA predicted. Of the estimate for this winter, NGSA forecasted that 35.8 Bcf/d will be used by residential and commercial customers (down from 38.2 Bcf/d last year) while industrial use would remain unchanged at 19.9 Bcf/d and electric use would increase to 17.3 Bcf/d (17.0 Bcf/d last year).

NGSA also cited EVA figures that show the trend of switching from coal to natural gas continued at an accelerated rate in 2011, with 12.9 Bcf/d worth of switching so far this year. According to EVA, 3.2 Bcf/d — the highest total over the last three years — of switching took place in May, the latest month for which figures were available. Another 3.0 Bcf/d worth of demand switched in March.

Horvath said prices, not environmental concerns, were the driving force behind the coal-to-gas switching.

“This is an amazing story for natural gas,” Horvath said. “This is almost three years straight, with no exception, with positive coal-to-gas switching in the country. This is extraordinary because prior to this, in all of our history, we’ve never had more than three weeks in a row of coal-to-gas switching. This is pretty clearly more than just a fad; it’s a trend. This shows some confidence that the reliability of natural gas for power generation is there. We’re pretty excited about that.”

Storage and supply are not expected to impact natural gas prices during the upcoming winter season, NGSA said, forecasting that 3,800 Bcf will be stored at the end of the injection season (compared to 3,847 Bcf at the end of last season). NGSA also estimated that new storage capacity will total about 80 Bcf (down from 107 Bcf last year) while the five-year average for percent of average fill will be 99% (down from 102% last year).

Finally on production and supply issues, NGSA forecasted that well completions during the 2011-2012 winter season will total 15,300 with average winter production of 63.1 Bcf/d, up from 14,982 wells and 60.0 Bcf/d from last winter. The association believes Canadian imports over the winter will total 5.9 Bcf/d (down from 6.1 Bcf/d last year), liquefied natural gas imports will be 0.6 Bcf/d (down from 1.3 Bcf/d) while Mexican exports will remain unchanged at 1.0 Bcf/d.

Horvath said NGSA has identified three wild cards — unexpected cold snaps, stronger economic recovery and more aggressive coal-to-gas switching — that could affect natural gas prices this winter. The association said it had accurately predicted four of the five metrics — weather, demand, storage and supply — it used to determine natural gas prices for the 2010-2011 winter season. It incorrectly predicted that the economy would be flat when it actually improved.

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